The real losers in the Carillion debacle

January 18, 2018 9:26 am

In a statement to Parliament, cabinet minister David Lidington told the members that as a private company the cost of Carillion’s failure would be borne not by the public, but by its shareholders and lenders. What he didn’t mention was that the lenders don’t just include banks and large financial institutions, but huge numbers of creditors, many of whom are small businesses.

Even conservative estimates put the potential number of creditors at 25,000. Every one of them now has a problem, and for some, that problem could be the final straw. The amount owed to Carillion’s supply chain has been quoted at £2 billion. Build UK has claimed that when a main contractor has crashed, as many as 18 percent of their sub-contractors have gone out of business. As the news of the liquidation was breaking, construction workers were being sent home, unsure whether they would have a job to return to or a pay packet at the end of the week.

However you look at it, and for all David Lidington’s reassuring words, the Carillion collapse will hit the public. There will be job losses. Maintenance work on prisons, hospitals and MOD properties will be stalled. Infrastructure projects, such as the construction of roads, will face lengthy delays while someone is found to take over the contracts. And, with a deficit in the company’s pension scheme, it’s likely that questions will be asked about the long-term viability of the Pension Protection Fund.

It’s a huge mess and no doubt there will be fingers of blame pointed in all sorts of directions. When all the signs were there, including typical 120-day payment terms for small businesses, Carillion has bungled on and all the time enjoying its status as the country’s second-largest construction firm. And that sticks in my craw because Carillion outsourced practically all its work to subcontractors. It’s those subcontractors who have been doing the graft on site – legions of smaller firms and their employees using their skills, standing the risk and ending up out of pocket.

As a business, Carillion was too complex. Why should the same company responsible for HS2 infrastructure be delivering school meals? It’s madness, and when complexity grows, and focus is lost, problems are inevitable. There may be some cachet in working for a giant corporation, but it’s clearly riskier than we’ve been led to believe.

As the managing director of a business serving the construction sector my view is that Carillion was – simply – too big and had too much power. Sadly, smaller-sized businesses – who collectively employ millions, who train thousands upon thousands of apprentices, and who literally build Britain – will be losing out because the keys to their prosperity – the contracts – were awarded to a business which couldn’t manage them.